Why Nations Fail: How to Cure a Nation’s Amnesia
On February 8th, 2025, Nobel-Prize-winning economist Daron Acemoglu published an essay in the Financial Times titled “The real threat to American prosperity”. In just a few paragraphs, he paints a grim picture of the United States in decline. Projecting less than a decade into the future, he describes an economy in stagnation, crippled by trade wars, massive federal debt, and unregulated monopolization. However, all these issues are overshadowed by a decades-long erosion of trust in innovation, investment, and democracy, as wealth inequality continues to climb. Despite this bleak prognosis, Acemoglu’s key point is not to predict doom but to emphasize one crucial fact: This was all avoidable.
If history teaches us anything, it is that all lessons are eventually forgotten. Speculative bubbles—stocks before the Great Depression, the dot-com boom in the 1990s, the housing crash in 2008, and the cryptocurrency surge now—inflate and pop in cycles. Regulations are implemented, only to be repealed decades later, allowing the same issues to resurface. Countries were underprepared for COVID-19 despite prior outbreaks such as SARS and Ebola. Tariffs deepened the Great Depression as nations retaliated and global trade collapsed, yet similar protectionist policies are being proposed again after half a century of globalization. The contribution of trade to US GDP has tripled since the 1920s, and producers in supply chains are no longer concentrated in the nation; but as the US has become more vulnerable to global retaliation, it has conflictingly forgotten the devastation it faced from protectionism a century prior. Why Nations Fail by Daron Acemoglu and James A. Robinson claims that certain institutions foster success, but after reading its case studies I noticed another theme: with forgetting comes failure.
The book itself is not explicitly about forgetfulness. Its core argument is that inclusive institutions—those that distribute political power, protect property rights and foster fair competition—lead to prosperity. Extractive institutions, by contrast, concentrate power among elites and stifle social mobility. Acemoglu and Robinson contend that nations fail when they adopt extractive institutions, often because they forget the inclusive institutions that brought them to power in the first place. Case in point: the authors’ analysis of Venice.
“In the Middle Ages, Venice was possibly the richest place in the world”. In 1330, it was three times the size of London (p.168). Today, it is little more than a tourist attraction. London alone contributes over one-fifth of the UK’s GDP, surpassing even California’s contribution to the US economy. Venice, on the other hand, gains less than $2 billion annually from tourism and is far surpassed by industrial centers in Italy like Milan. Acemoglu and Robinson explain that Venice thrived due to innovative institutions in economics and politics, from joint stock companies and bankruptcy laws to balance of power mechanisms and independent courts. Yet seeing institutions threaten the profits and the influence of the aristocracy led the ruling elite to consolidate political power, crushing competition and monopolizing trade. In doing so, they dismantled the very institutions that had made them wealthy.
Venice stagnated while the rest of Europe grew. The aristocracy didn’t even benefit in the long run—innovation withered, and Venice faded into irrelevance as trade routes shifted elsewhere. Just as Venice forgot and abandoned its successful institutions, other failed states analyzed in the book follow a similar pattern: Rome, once a republic, was destroyed by weak, corrupt emperors; the Ottoman empire lost its meritocracy and became the “Sick Man of Europe”; Argentina imposed state control over an economy that had rivalled the US; and Mayan city-states saw kings and elites seize increasingly more power as their technology, architecture, and other achievements were left behind. All of these examples highlight how fragile success is, and how institutions can easily be overturned by powerful minorities who forget long-term consequences.
While the ideas behind the book are compelling, it also has its flaws. The reliance on historical case studies means that it is prone to selection bias, however varied its examples may seem. When analyzing China, which hosts both extractive political institutions and relatively inclusive economic ones, the authors merely state that its growth is unsustainable—yet for decades China has continued to develop. Ignoring opportunities like this to question the limitations of their theory, the book reads more like a narrative than a complex analysis; nevertheless, the authors’ proposal remains a Nobel-worthy explanation for the factors behind a nation’s success.
Despite being written in 2012, Why Nations Fail could not be more relevant today, as a significant part of the world seems poised for decline. Acemoglu’s warnings extend beyond the US. India’s foreign investment is slowing while press freedom and labor market metrics stagnate or decline. South Korea has been rocked by political chaos after now-impeached President Yoon Suk Yeol declared martial law in December 2020. Given these failures, a question arises: What have we forgotten? For the US, perhaps it is the emphasis on competition and innovation now suppressed by massive monopolies, or the checks and balances circumvented through executive orders. For India, the benefit of economic liberalization in the 1990s seems to be diminished by new regulations targeting foreign companies. Power is increasingly centralized in Modi’s hands as press freedoms and minority treatment declines gradually. For South Korea, the abuse of martial law in the hands of previous dictators—once used to crush free speech and assembly—appears disregarded as Yoon’s popularity has managed to miraculously rebound despite his actions.
Preventing decline requires active maintenance. No constitution, however finely crafted, can survive the erosion of time without vigilance. South Korea’s constitution contains safeguards against the abuse of martial law—one being that the National Assembly must approve it within 72 hours. Yet when martial law was declared in 2024, the military stormed the assembly in a failed attempt to prevent a vote. Though the coup ultimately failed, it exposed the ever-present danger of loopholes and exploitation. A document alone cannot safeguard democracy; it must be upheld by institutions and citizens committed to preserving it. Tools such as historical education need to be used and maintained to explain the justification behind successful decisions. Institutional redundancy needs to ensure that no single structure holds too much power. In theory, this is simple; in practice, it is extraordinarily difficult. Transparency and constant testing are needed to maintain the balance of power. These defenses may be expensive and cumbersome, but they are necessary. Mistakes are inevitable—but if they are recognized, revised, and remembered, success remains possible.